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Monday, May 23, 2016

EARNINGS (Factset)“With 95% of the companies in the S&P 500 reporting
actual results for Q1 to date, the percentage of companies reporting actual EPS
above estimates (71%) is above the 5-year average, while the percentage of
companies reporting sales above estimates (53%) is below the 5-year average…..The blended earnings decline for Q1 2016 is -6.8%. The
first quarter marked the first time the index has seen four consecutive
quarters of year-over-year declines in earnings since Q4 2008 through Q3 2009.
It also marked the largest year-over-year decline in earnings since Q3 2009
(-15.7%).” Earnings Insight available at…http://www.factset.com/websitefiles/PDFs/earningsinsight/earningsinsight_5.20.16/viewMy cmt: Most of the earnings decline is due to declines in
oil prices and resulting losses in the energy sector. While this is bad for
Wall Street statistics, it might not be a recession indicator.RATES TOO LOW FOR TOO LONG IS RISKY - BULLARD (Reuters)“U.S. interest rates being kept too low for too long
could cause financial instability in future and stronger market expectations
for a rate rise are "probably good", St. Louis Federal Reserve
President James Bullard said on Monday. A relatively tight labor market in the
United States may also exert upward pressure on inflation, raising the case for
higher interest rates, Bullard added.” Story at…http://www.reuters.com/article/us-usa-fed-bullard-idUSKCN0YE19BMy cmt: The FED is jawboning a rate hike for June or
July.
MARKIT PMI DOWN (MarketWatch)

“U.S. growth appears to have picked up in the second
quarter, but the latest Markit survey of American manufacturers fell to a weak
50.5 in May and signaled little improvement in a key segment of the economy." Story
at…"

Chart from Federal Reserve Bank of St Louis at…https://research.stlouisfed.org/fred2/series/NAPMMy cmt: Back on 11 Jan 2016, I presented a commentary
from John Hussman that noted a high corollary of recession to ISM/PMI Composite
Index.See Paragraph: “This Data IS
Suggesting Recession” at…http://navigatethestockmarket.blogspot.com/2016/01/yield-curve-suggesting-recession-no-us.htmlThe Index has moved up since January so it is not clear
now that it is still suggesting recession. If anything, there has been a slow
continued improvement in the economy supported by improved Leading Economic
Indicators (LEI) recently.WithFED Officials making ever more hawkish
statements, it would appear that the FED wants to raise rates in June or July
as long as the trajectory of economic indicators continues up.This will tend to keep a lid on the stock
market, but will not necessarily cause a crash. Still, we have observed a
number of indicators that have suggested 2131 on the S&P 500 in May of 2015
was a significant top.MARKET REPORT / ANALYSIS-Monday, the S&P 500 finished down 0.2% to 2048 at
the close. -VIX rose about 4% to 15.82.-The yield on the 10-year Treasury slipped to 1.84%.Monday again saw very low volume on the NYSE; it was
about 20% below the monthly average. Perhaps traders have decided to
“go-away-in May”. On the whole, indicators declined today and remain mostly
bearish.MONEY TREND & SHORT TERM TRADINGThe short-term Money Trend indicator flattened, Monday,
and that’s a neutral signal.I continue
to hold short positions mostly in SH and some in QID. MARKET INTERNALS (NYSE DATA) The 10-day moving average of the percentage of stocks
advancing (NYSE) improved to 49.9% Monday. It was 49.7% Friday. A number below
50% is usually BAD news for the markets.On a longer term, the 150-day moving average of advancing
stocks slipped 51.3%. A value above 50% generally indicates an up-trend.The McClellan Oscillator (a Breadth measure) fell
and remained negative – a bearish indicator in the short-term. New-highs outpaced New-lows. The spread (new-highs minus
new-lows) was +40 Monday. (It was +24 Friday).The 10-day moving average of the change in spread was
minus-14. In other words, over the last 10-days, on average; the spread has decreased
by 14 each day. Market Internals switched
to negative on the markets.

Market Internals are a decent trend-following analysis of
current market action, but should not be used alone for short term trading.
They are usually right, but they are often late.They are most useful when they diverge from
the Index.In 2014, using these
internals alone would have made a 9% return vs. 13% for the S&P 500 (in on
Positive, out on Negative – no shorting).Of course, few trend-following systems will do well in an extreme
low-volatility, nearly straight-up year like 2014.

TSP (RETIREMENT ACCOUNT – GOV EMPLOYEES) ALLOCATIONOn 30 Dec I reduced my invested position in my retirement
account to 30% invested in stocks thru an S&P 500 Index fund (“C”-fund in
the TSP) and on 15 Jan I reduced stock allocation to zero in long-term
accounts. If the S&P 500 index closes
above 2110, I plan to add to my stock allocation.The S&P 500 peaked in Mid-May 2015 and has not been
able to break higher in the past 12-months. That looks like a top to me. See
“Why the Bull Market May be Dead” in my 14 December blog at…http://navigatethestockmarket.blogspot.com/2015/12/stocks-are-topping-time-to-sell-hussman.html

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About Me

I am an engineer with a lifelong interest in "playing with numbers" so what could be more fun than trying to develop a system that beats the stock market? Well, lots of things, but I decided to do this anyway.
While I am not a finance-professional, or professional investor, I have developed some skills.
I competed in two CNBC Million Dollar Portfolio contests finishing in the top 4% in 2008 (34,320th of 800,000) and the top 0.1% (448th of 500,000) in 2009. More importantly, I managed to sell out of my retirement accounts at or near the top in 2000 and 2007 and bought close enough to the bottom that I didn’t lose too much sleep. (Even Bill Gates lost SOME sleep.)
I hope that my thoughts will help you achieve your investing goals. Please remember that my ideas are free and there may be times when my ideas are worth less than what you paid.